“You Are Bleeding From The Elbow!”: College Loans

Student Loan Debt

It sucks that you are bleeding to death.

But we cannot resolve the underlying issue if we refuse to talk about the fact that if you didn’t saw off your arm at the elbow you wouldn’t have your most-pressing problem in the first place.

So it is with student loans.

Few federal programs are as uniformly unloved as student loans. Since the government replaced federal guarantees with direct lending, conservatives have ramped up criticism of the loan program as an unnecessary public intrusion on banking. Meanwhile, liberals dislike that federal student lending is an entitlement program that benefits mainly the middle class.

What can there be to love about a program that starts new graduates on their adult life with piles of debt? How about this: as college tuition rises, loans are still the most cost-effective way for the government to bridge the gap between the cost of college and what students and their parents can pay.

The article goes on to note that private tuition has more than doubled; public school tuition has tripled. Then there are the utterly-ridiculous ramps in fees and costs — books that are hundreds of dollars each and intentionally “updated” (with no factual change) every year to prevent the resale market from holding down price, “fees” that are rising even faster than tuition and other various forms of chicanery that colleges engage in to render the “tuition” quote almost meaningless.

Nobody wants to talk about why costs have risen at all, say much less at this outrageous rate.  Let’s face it — Calculus is still Calculus.  Literature hasn’t changed at all; Shakespere hasn’t written anything new in a very long time.  And while we have made new discoveries in physics and chemistry, the typical undergraduate classwork and labs haven’t changed one iota — nor has the required physical plant to teach them.

The way we did it before was plenty good enough to put people on the moon, make air travel affordable to most developed nations and their citizens, put a car in everyone’s garage, discover the transistor and integrated circuit, build the personal computer and Internet along with most of what we consider “creature comforts” today.

In short the old model was not broken.

So how is it that the price of something, when the cost of providing it at a competent level has not changed, has gone up at multiples of the general rate of inflation?

That’s simple — basic economics tells us that when too much money chases too few goods or services, the general price level of that thing will rise until demand is suppressed to the level of supply.

Why not the other way around?  Why hasn’t supply increased instead?  That’s simple — the educational lobby along with government has put upartificial barriers to entry such as accreditation requirements and similar so that competitive offerings are not able to come into the market on a freely-accessible basis.

The natural outcome is that educational institutions financially rape our young adults — the very subgroup of adults who have the least real-world experience and thus are most-poorly equipped to erect the middle finger — or lynch the Dean and Provost — in response to their shenanigans.

This isn’t the market doing its work.  In other fields we would call this behavior Racketeering and Price-fixing, a rank violation of the Sherman and Clayton acts.  In fact Apple stands accused of (and must face trial on) exactly that when it comes to “E-Books” over an alleged conspiracy that ismuch less involved than what has gone on here.

But not in this case.

In this case the government is fully invested in making sure our young adults get their share of financial rape when they attempt to enter the post-secondary educational system.

We thus call the educational system’s loan-based funding model “a viable way to pay for college educations” by forcing students to mortgage their futures.

In the late 1970s and 1980s, say much less earlier on, it was entirely possible (and millions of people did it) to work your way through school flipping pizzas or otherwise doing various sorts of work.

Today this path is more-or-less foreclosed upon for most students, and that’s been an intentional matter of lenders, including now the government, along with colleges and accreditation bodies that have made the means of acquiring a degree without spending the jacked-up price they demand impossible.

The expansion of debt-financing is not a good thing — it’s a bad one.  It constrains future spending power for the pleasures of the present.  When this is a matter of free choice of free actors in an economy there’s no particular problem with it, as those who make bad choices go bankrupt and those who make good ones prosper.

But when the government allows various bodies, some governmental and some private, to exercise the power of government force to effectively constrain the supply of a given good or service and then they pour “unlimited” amounts of money into that good or service’s demand side via various loan “guarantees” while shutting off the ability of those who take on too much debt to declare bankruptcy and stick the drivers of that behavior with the well-deserved loss we wind up where we are now.

As I point out in Leverage college education is no longer a slam-dunk “good deal” on a cost:benefit basis.  In many cases it no longer makes sense to attend at all.

But in all cases it is an outrage and nothing more than theft to allow an industry, backed by government force, to demand that you “sell forward” your productivity in the future in order to obtain some “holy” document.

That’s not far from slavery and those who push such a model for how young people “should” behave, especially those who are in a position of authority and trust, deserve indictment — or worse — for their part in driving this behavior.

What they most-certainly do not deserve is accolades and further acts of enabling.

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